SECURITISATION AND RECONSTRUCTION OF FINANCIAL … · 2014. 12. 27. · ANDHRA PRAGATHI GRAMEENA BANK HEAD OFFICE::KADAPA Circular No.153/2007-BC-CST 08.08.2007 SECURITISATION AND

ANDHRA PRAGATHI GRAMEENA BANK HEAD OFFICE::KADAPA

Circular No.153/2007-BC-CST 08.08.2007

SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST (SARFAESI) ACT

All the branches/offices are aware that the major problem faced by banks and financial institutions in India is that of huge amount locked in NPA accounts and banks have to go for long litigation process which takes years to complete. To overcome this situation, Government of India made Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 and it is effective from 21.06.2002. Till date, the above Act made applicable to the Commercial Banks and RRBs are not brought under the purview of the Act. Now the Government of India vide Notification bearing No.F No.1/2/2007.BOI dt.17.05.2007 has specified the Regional Rural Banks as defined in Clause (f) of Section.2 of Regional Rural Banks Act 1976 as “Bank” for the purpose of SARFAESI Act. With the above notification, the provisions of SARFAESI Act are made applicable to RRBs w.e.f. 17.05.2007. The Act enable the Banks to improve recoveries by exercising powers to take possession of securities and sell them without intervention of Courts and to exercise wide range of powers conferred on them. Detailed guidelines are enclosed herewith in this regard. 1. Operational guidelines/procedures -- Part-A 2. Check list of action points in the chronological order -- Part-B 3. Empanelment and utilization of services of approved Valuers and enforcement Agencies for enforcement of securities -- Part-C 4.Draft Notice, applications & agreement formats -- Part-D All the branches/Regional Offices are advised to go through the guidelines carefully and take advantage of the provisions of Act for recovery of NPAs. Clarifications required if any on this circular may be sought from Head Office-Chairman‟s Secretariat. (M.OBULESU) CHAIRMAN

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Circular No.153/2007-BC-CST dt.08.08.2007 Part (A)

Operational Guidelines/Procedures

The Act deals with four distinct actions in respect of financial assets held by Banks and Financial Institutions as under:

1) Securitisation of financial assets means acquisition of financial assets by any Securitisation Company or Reconstruction Company from any originator whether by raising funds by such Securitisation Company or Reconstruction Company from qualified institutional buyers by issue of security receipts representing undivided interest in such financial assets or otherwise.

2) Reconstruction of Financial Assets means reconstruction of financial assets by an Asset

Reconstruction Company under the provisions of the Act, registered under the Companies Act, 1956.

3) Enforcement of security interest without intervention of Court means, any security interest

created in favour of any secured creditors may be enforced, without the intervention of Court or Tribunal by such creditor in accordance with the provision of this Act, by issuing a notice to Secured Borrower whose loan account has been classified as NPA giving sixty days time to pay the dues as mentioned in the notice, failing which Securities described in the notice will be enforced and dues will be recovered.

4) Setting up of Central Registry means the Registry set up or caused to be set up by the

Central Government by notification, to be known as Central Registry with its own seal for the purpose of Registration of transaction of Securitisation and Reconstruction of Financial Assets and creation of security interest under this Act. The Central Registry is yet to be established.

At present the branches have to concentrate on item No 3.

Salient features of the Act are as follows:

1. The Act is deemed to have come into force as on 21.6.2002.

2. The Act is in addition to DRT Act 1993, Companies Act 1956, The Securities Contract [Regulation] Act 1956 and The Securities and Exchange Board of India Act 1992.

3. The Act shall have effect notwithstanding anything inconsistent therewith contained in any

other law for the time being in force.

4. The Act under Section 34 specifically bars Civil Court's jurisdiction to entertain any matter including granting injunction in all matters which a DRT / DRAT enjoys under Recovery of Debts Due to Banks & Financial Institutions Act as also under this Act.

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Circular No.153/2007-BC-CST dt.08.08.2007

5. Banks can float an Asset Reconstruction Company singly or as a joint venture with other players or can become a sponsor by holding not less than 10 percent of the paid up equity capital of a Reconstruction / Securitisation Company.

6. Section 13 of the Act gives powers to Securitisation and Asset Reconstruction Company and also to Banks and Financial Institutions for Enforcement of Security Interest in favour of secured creditor without the intervention of Courts / Tribunals.

7. The Act exempts the following from the purview of operation for the following reasons:

i) A lien on any goods, money or security. Exercise of banker‟s lien is regulated by Sec 171 of the Contract Act and intervention of a Court or a Tribunal is uncalled for. ii) A Pledge of movables is governed by the exercise of right of sale under section 176 of the Contract Act without intervention of the Court or Tribunal. iii) The security created in any aircraft. The same is the position in respect of a vessel as defined under sec 3 (55) of the Merchant-Shipping Act, 1958. iv) A conditional sale, hire purchase or lease (lease of movables) is also outside the purview of the Act, since, in such cases no other security interest is ever created. v) The rights of an unpaid vendor under Section 47 of the Sale of Goods Act, 1930, are exercisable by the unpaid vendor without intervention of the Court or the Tribunal. vi) The security interest securing repayment of any financial asset not exceeding Rs.1.00 lakh is outside the purview of the Act. Therefore the outstanding shadow balance must be more than Rs.1.00 lakh immediately prior to the date of issue of notice. vii) The security interest created in an agricultural land is also not covered under the Act. Branches shall ascertain as to whether particular land is classified as agriculture or non-agriculture, in the revenue / municipal records as on the date of issue of notice and take suitable decision. Hence, irrespective of purpose/classification of loan, if security taken remains as agriculture property, the Act is not applicable. viii) The amount due is less than twenty per cent of the original principal and interest thereon immediately prior to the date of issue of notice. ix) To invoke the provisions of the Act, documents or decree as the case may be should be within the period of limitation prescribed under the Limitation Act, 1963. x) The Act has not been made applicable to properties not liable for attachment under Section 60 (1) of the Code of Civil procedure, 1908, since the properties mentioned there under are connected with right to life of the owner / holder of such properties. However, if they are offered as security, the Act is applicable.

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8. A. As per the Act “Borrower” means any person who has been granted financial assistance by any Bank or Financial Institution or who has given any guarantee or created any mortgage or pledge as security and hence the word “Borrower” only is used everywhere in the Act and the Rules. The Act is meant for securities and the persons who have created a charge on those securities only. Hence for the sake of clarity the word “Owner” is used in relation to the property/security meant for possession and sale under this Act, in this circular and formats. 8. B. Apart from powers to sell the assets, Banks / Financial Institutions, Asset Reconstruction Company can initiate any one or all of the following steps.

i. Take possession of secured assets, including right to transfer by way of lease, assignment or sale (Sec 13. 4. a).

ii. Take over Management of the business of the borrower (Sec 13. 4. b). iii. Appoint a Manager to manage the secured assets so taken over (Sec 13. 4. c). iv. Demand by notice in writing from any person who has acquired any of the secured

assets from owner and from whom any money is due or may become due to the owner to pay the secured creditor as is sufficient to satisfy the debts (Sec 13. 4. d).

v. Proceed against owner before an appropriate forum for balance money if the realisation by sale is not adequate (Sec 13.10) (within limitation period).

vi. Proceed against the Guarantor/borrower as the case may be, without prejudice to above (Sec 13.11).

vii. Request the jurisdictional Chief Metropolitan Magistrate / District Magistrate‟s help for taking possession/custody of any secured assets (Sec 14).

All payments received after taking above steps will get a valid discharge.

9. Persons who can exercise the rights of the secured creditors under the Act Authorised Officer: The Regional Managers who are in the rank of Scale-IV working at Regional Offices are authorised for exercising the rights of a secured creditor (including issuing of notice). The Officers/Managers in Scale I, II and III cannot act as Authorised officer. 10. Requirements before issue of Notice: a) Default: As per Sec 2(j) of the Act „Default‟ means non-payment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as Non-Performing Asset in the books of account of the secured creditor (it may be noted that even if interest alone is outstanding, then also the default has occurred). b) Non Performing Asset: An account is classified as NPA as per RBI directives and Circulars issued from time to time. Our loan agreements provide for recalling of full dues in case of defaults.

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Circular No.153/2007-BC-CST dt.08.08.2007 c) Non Suit Filed NPA Accounts: The Act made a provision to Banks to issue a notice to a secured borrower / guarantor / owner of the property (As per Format – B to both borrower and guarantor for non suit filed accounts) whose loan account has been classified by the Bank as Non Performing Asset (as sub standard, doubtful or loss asset) in accordance with the directions or guidelines relating to asset classification issued by Reserve Bank of India. It is also a Recall Notice to all concerned. The borrower / guarantor / owner will be given 60 days time (from the date of notice) to pay the dues mentioned in the notice. If they fail, securities described in the notice will be taken over, enforced and dues will be recovered. It shall be ensured that all particulars such as total dues (shadow account balance), interest, full description of the property as per the mortgage documents with details namely Door Number/Flat Number/Block Number/ Extent/Name of the Road & Locality with correct boundaries etc., are furnished correctly in the notice. Branches shall note that issuing of notice under the Act should be in respect of loans, which are backed by adequate securities and having good market. It is also to be ensured that period of limitation is available to enforce the securities and approach DRT/Civil Courts for recovering the balance loan amount if any. It is made clear that by enforcing the provisions of the Act, the Limitation does not get extended or the time spent for the steps initiated under this Act will not be excluded for the purpose of Limitation. d) Suit Filed Accounts: The provisions of Act can be enforced in suit filed accounts and decreed debt accounts also, unless they are exempted from the purview of operation of the Act as mentioned at point No.7. While initiating action in respect of suit filed/decreed debt accounts, it shall be ensured that no interim orders are in force against the Bank in the proceedings before Court/DRT, for e.g.: an order of status quo or any order which prevents taking actions including under the Securitisation Act. Wherever such orders are operative, it will be entirely appropriate to first get such interim orders vacated in order to proceed under the Securitisation Act. While selecting suit filed/decreed debt cases for initiating action under the Act, Branches/Administrative Offices shall keep in mind the above mentioned conditions and obtain the opinion of Panel/Retainer Lawyer wherever such orders are in force. It is possible to take simultaneous steps under Securitisation Act during the pendency of suit/OA as per the decisions noted below: 2007 (135) Company Cases 1 (Supreme Court) Transcore Vs. UOI. 2006 (2) DRT cases 76 (DRAT Chennai) S K Viji Vs. IOB. 2006 (1) Kerala Law times 161 Sahir Shah Vs. BOI. 2005 (1) Kerala Law Times 31 Abdul Azeez Vs. PNB. 2004 (5) Andhra Law Digest 517 Hotel Raja Hamsa International Vs. IOB.

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Circular No.153/2007-BC-CST dt.08.08.2007 If EP/RC is pending then, also it is permissible to proceed under Securitisation Act as per decision reported in 2006 (3) Kerala Law Times 121 Solaris Systems Pvt. Ltd. Vs. OBC. Only if the Bank wants to withdraw the OA for proceeding under Securitisation Act, then an application has to be filed before the DRT concerned. It is not mandatory/compulsory in all cases. It is not applicable to Civil Suits filed for recovery before Civil Courts. Wherever DRT cases are not filed, notices should be issued first and if necessary, cases may be filed before DRT to save limitation (if borrower refuses to execute AOD) and both the steps may be continued simultaneously. However, a narration shall be made in the DRT application about the upto date steps taken under SARFAESI Act and that OA is filed before DRT in order to save limitation. In pending cases, the respective Court/DRT shall be informed of the action proposed to be taken under the Act by filing a memo as per Format – F e) Procedure for obtaining permission for Issuing of Notice: Branches shall send the

proposal in Format – A and seek permission to issue notice from the respective Regional Office.

In respect of borrowers whose credit limits are sanctioned and serviced by Head Office, the proposal for issue of notice shall be submitted through respective Regional Office. Regional Offices shall examine the applications received from the Branches and accord permission to issue notices only in cases where ealizable secured assets are available and documents are well within the period of limitation. If the limitation period available is short, suit should be filed first to save limitation and then proceed under Securitisation Act. The Authorised Officer shall issue notice in the specified format to the borrower/s, guarantor/s and owners recalling the dues. Wherever the model draft demand notice is required to be changed due to any specific reasons, the same shall be vetted suitably by Panel/Retainer Advocate. In respect of accounts where there are no complications, notices in such cases shall be issued to borrowers and guarantors in the Format –B (Non suit filed accounts) or Format C (Suit filed accounts ) by the Authorised Officer to avoid delays in getting the notices vetted by Retainer Advocate. 11. Serving of Notice: The serving of demand notice shall be made by delivering or transmitting at the place where the borrower/ guarantor/owner or his agent, empowered to accept the notice or documents on their behalf, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to them or their agent empowered to accept the service or by Speed Post or by Courier or by any other means of transmission of documents like fax message or electronic mail service.

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Where Authorised Officer has reason to believe that they are avoiding the service of the notice or that for any other reason, the service can not be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which they ordinarily reside or carry on business or personally work for gain and also by publishing the contents of the demand notice in two leading newspapers, out of which one in vernacular language (the translated version in local language only) having sufficient circulation in that locality. However in such cases, instead of publishing the entire text of notice in newspapers, an abridged notice as per Format – D shall be published to save cost. Where the borrower is a body corporate, the demand notice shall be served on the registered office or any of the branches of such body corporate as specified above. The demand notice shall be served on all borrowers and guarantors. Any other notice under the Act in writing to be served on the borrower or his agent by authorised officer shall be served in the same manner as stated above. 12. Borrower’s Right of Objections: The borrower/s and or guarantor/s have been given an opportunity to raise objections in writing in response to the Demand Notice issued by the Bank. The objections raised by them should be studied and Bank‟s stand in respect of the objections raised should be communicated to them within 7 days. It should not be a routine reply without application of mind but it should be a detailed / elaborate one containing reasons for rejection of the objections raised by them. The rejection/reply should be after meaningful consideration and not a ritual rejection. The branches have to submit point-wise comments to the Authorised Officer to finalise the draft reply. The replies prepared shall be vetted by the Retainer Advocate, if necessary and the duly vetted reply be sent to them under the signature of Authorised Officer of the Bank. If it is not possible to send full/proper reply within 7 days, an interim reply may be sent as per Format –D-I (by Certificate of Posting) to gain time to send detailed reply by any one of the modes mentioned above. A gist of possible objections and guidance for preparing suitable reply is furnished hereunder:

REPLY TO DEMAND NOTICE

Sl. No.

Expected objections from Borrower/owner

To explain with reference to the following

1 Denial of loan Loan application and loan documents. Proof of end utilization, particulars of specific release etc.

2 Denial of execution of documents Loan documents with other correspondence if any.

3 Denial of creation of charge / mortgage Loan documents, hypothecation / pledge agree-ments and mortgage papers. If they are registered with statutory authorities like ROC, Sub Registrar, RTO etc., that factor also to be referred to.

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Sl. No.

Expected objections from Borrower/owner

To explain with reference to the following

4 Barred by limitation Refer to latest AOD, Balance Sheet of the party etc.

5 Rate of interest is not correct, rate of interest is high and not agreed for the said rate

Sanction letter, loan documents and various circulars.

6 Debits of various expenses to the account disputed

Refer to the availability of enabling clauses in the loan documents.

7 Claim is not correct To deny.

8 Statement of account not furnished/received

To furnish a copy of account.

9 Bank can‟t take action without filing suit or can‟t take possession without order of the court etc.

No such bar available under Securitisation Act. In fact Civil Court has no jurisdiction at all for steps taken under this Act.

10 Civil Case/DRT cases pending. Hence, Securitisation is not possible. Simultaneous/parallel action not permitted.

No prohibition / other provisions of SARFAESI Act against simultaneous action provided it is reported to the court / DRT concerned. Supreme Court has decided that remedies under DRT Act & Securitisation Act can be simultaneously resorted to.

11 More time needed. Fresh rephasement/OTS is requested

Consider the same on merits as per extant guidelines. Advise them to call on the Branch and submit their proposal for examination.

13. Enforcement of Securities: If there is no response from the borrower and/ or guarantor, after expiry of 60 days from the date of issuing of notice, the bank can take action under Sec.13 (4) at any time and enforce the securities. Though there is no time limit specified, action must be taken within a reasonable time and within the period of limitation prescribed under Limitation Act. The loan documents shall be kept in force by obtaining acknowledgement of debt from the borrower and guarantors. 14. Sanction of Rephasement /OTS/Upgradation after issue of notice: In response to the Notice issued, if the parties approach the Branch with proposal for rephasement or OTS or upgradation, the same may be considered as per extant guidelines. In respect of rephased loans, if the account subsequently becomes NPA due to default in payment there is no need to send a fresh Demand Notice of 60 days duration. Similarly, if parties fail to honour the OTS terms of payment, a fresh Demand Notice of 60 days need not be sent to them.

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Circular No.153/2007-BC-CST dt.08.08.2007 However, Branches/Administrative Offices should take care at the time of communicating upgradation / rephasement / OTS to include a condition in their sanction letter as follows: - “Recovery steps under SARFAESI Act are kept in abeyance. In case of any default of payment as per the rephasement schedule / OTS terms and conditions / upgradation, the Demand Notice already issued under SARFAESI Act would automatically stand revived and the Bank would be taking further steps under the Act without issuing another / fresh 60 days notice besides cancelling/withdrawing OTS/Rephasement allowed.” When any default is committed, it would be sufficient to send a simple letter of intimation to them as per Format–E under Certificate of Posting. 15. Possession of Movable Property: If the amount mentioned in the demand notice is not paid within the time specified therein and even after disposal of their objections, the Authorised Officer shall initiate steps to realise the amount by adopting any one or more of the measures available under the provisions of Act. Officials of the Branch shall personally visit the mortgaged site / securities and ascertain their exact position, obtain relevant records from the authorities such as revenue, gram panchayat, municipality etc, to decide the actions which will be effective to liquidate the liability of the borrower. The Authorised Officer shall take note of the following action points while taking possession of the secured assets.

I. Ensure availability of storage facility / space for safe keeping of the seized goods/movables. II. The securities / goods to be seized should command reasonable price and assured

recovery. III. Unless there is a ready market, as far as possible, the seizure of perishable goods shall be

avoided. IV. In case of movable assets, the exact location / whereabouts of the securities should be

ascertained. V. Wherever any resistance is anticipated from the borrower, seek help from the Dist Magistrate

or Chief Metropolitan Magistrate, by filing an application within whose jurisdiction the assets are located, to take possession of such assets. (Format -J). It has been decided by various High Courts etc., that Magistrates need not issue Notices again to the owner as the Bank has already given 60 days notice etc. Magistrates have to order assistance immediately. The following decisions may be relied upon.

1. 2004 IV Banking Cases 529 (Karnataka) - Citi Bank Vs. Sudeep Singh 2. 2005 (1) ISJ Banking 612 (DRAT, Chennai) - ARCIL Vs. Kumar Metallurgical Corp. Ltd. 3. 2006 (4) Karnataka Civil & Criminal Reporter 2216 (DB) - Sunanda Kumari Vs. Standard Chart Bank 4. 2007 (1) Karnataka Law Journal 309 Karnataka High Court - Vijaya Bank Vs. Shameen Transports

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VI. Keep informed of the action of the Bank to the local Police. Take their help wherever stiff resistance from the borrowers is anticipated.

VII. Where the possession of movable property is to be taken over, the Authorised Officer shall take the same in the presence of two witnesses after a Panchnama drawn and signed by the witnesses. (Format -K)

VIII. After taking possession, the Authorised Officer shall make an inventory of the movable property (Format- L). Deliver a copy of such Inventory and Panchnama to the owner or to any person entitled to receive on behalf of owner of the property/ies.

IX. The Authorised Officer shall keep the property taken possession either in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property: Provided that if such property is subject to speedy or natural decay, or the expenses of keeping such property in custody is likely to exceed its value, the Authorised Officer may sell it at once.

X. The Authorised Officer shall take steps for preservation and protection of seized secured assets and insure them, till they are sold or otherwise disposed of.

XI. Wherever the seized securities are vehicles, tractors, rigs etc, a due intimation of such seizure is to be given to RTO concerned by Registered Post with acknowledgement due for claiming exemption from Road tax etc. Copy of the RC / Tax card available with the branch should also be sent to the RTO and they should be informed of the address of the premises/godown where the same is kept

XII. In case any secured asset is

a) a debt not secured by negotiable instrument or

b) a share in a body corporate;

c) Other movable property not in the possession of the borrower except the property deposited in or in the custody of any court or any like authority, the Authorised Officer shall obtain possession or recover the debt by service of notice covering the following aspects: -

The debtor of the borrower is to be prohibited from making payment to the borrower and the borrower is also to be prohibited from recovering the debt. The debtor (of the borrower) is to be directed to effect payment to the Authorised Officer of the bank. In the case of Garnishee orders, the bank shall file an application to the Court to restrain the Garnishee from effecting payment of the monies due to the borrower and the same is made absolute. If the secured asset is a share in the body corporate, the authorised officer has to issue directions to the borrower to transfer the same to the bank and also issue directions to the body corporate from not transferring the shares in favour of any person other than the Bank. Copy of this notice is also to be sent to the Company‟s Registrar to the issue or share transfer agents.

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Circular No.153/2007-BC-CST dt.08.08.2007 In case of movable properties which are not in the possession of the borrower, (except property deposited in the custody of the Court or any other authority) the borrowers are to be called upon to handover the possession to the Authorised Officer and Authorised Officer is to take the custody of the movable property in the same manner as provided in the Act. Where the movables are secured assets other than those covered above, possession is to be taken by the Authorised Officer by taking possession of documents evidencing title to the movables. 16. Preferring of appeal in DRT by the Owner/Borrower/Guarantor: Any appeal against the action initiated by the Bank under the Act would lie with DRT only irrespective of the amount of claim. The aggrieved Owner may prefer a first appeal before DRT having jurisdiction in the matter, within 45 days from date of taking possession/takeover management/issuing sale notice without depositing any amount. No appeal/writ petition is maintainable at the stage of Notice as held by the Supreme Court in Mardia Chemicals case. Though Sec 17(2) of the Act has been struck down by the Supreme Court, in the same Judgement it has been ruled that Tribunal in exercise of its ancillary powers should have jurisdiction to pass any stay/interim orders subject to condition it may deem fit and proper. Hence, if borrower or guarantor approaches DRT, Branches should plead for deposit of at least 25% of the claim amount to show their bonafides and/or direction to parties for full settlement / submission of One Time Settlement proposal in deserving cases. The scope of enquiry by DRT has been expanded. DRT can look into the matter and if necessary may order restoration of the management of the assets or possession back to the borrower. A time limit of 60 days is prescribed for DRT to dispose off the first application of the borrower. In case of delay by DRT, DRAT may be approached for direction to DRT for speedy disposal. If DRT or DRAT on an appeal records a finding that the possession of the secured assets by the creditor is wrongful, the same shall direct the secured creditor to return the assets of the borrower besides payment of compensation and costs. An aggrieved person may prefer an appeal before the DRT having jurisdiction in the matter. Any person aggrieved by the orders passed by DRT may file second appeal within 30 days to DRAT. The appeal before the DRAT is available to the aggrieved secured creditor also.

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Circular No.153/2007-BC-CST dt.08.08.2007 The fee for filing appeal in DRTs/ and second appeal to DRAT shall be as follows – (payable by the owner also)

Sl. No. Nature of Application Amount of Fee payable

1 Appeal to DRT under Section-17 (1) by borrower:

(a) Amount of debt is less than Rs.10.00 lakh Rs.500/- for every Rs.1 lakh or part thereof

(b) Rs.10.00 lakh and above Rs.5000/- plus Rs.250/- for every Rs.1.00 lakh or part thereof in excess of Rs.10.00 lakh subject to a maximum of Rs.1.00 lakh

(c) By an aggrieved party other than the borrower and less than Rs.10.00 lakh

Rs.125/- for every Rs.1.00 lakh or part thereof

(d) Rs.10.00 lakh and above Rs.1250/- plus Rs.125/- for every Rs.1.00 lakh or part in excess of Rs.10.00 lakh subject to maximum of Rs.50000/-.

(e) Any other application by any person Rs.200/-

2. Appeal to DRAT against any order of DRT under Section-17

Same fees as provided at Clauses (a) to (e) of Serial No.1.

DRT/District Judge, DRAT can award compensation and cost to the borrower if the assets are ordered to be returned by the Banks. The Act has been amended from 11.11.2004 to the effect that if the owner files a second appeal to DRAT against the order of DRT in his petition to DRT, then DRAT can direct him to deposit 50% of the amount demanded in the Notice as a pre-condition. DRAT has discretion to reduce it to 25%. This amendment has been upheld by a Division Bench of High Court of Delhi in 2006(2) DRT cases (DB) 550 R V Saxena Vs. Union of India.

17(A). Sale of movable secured Assets: -

Valuation of movable secured assets: After taking possession of assets and in any case before sale, the Authorised Officer should obtain valuation report of the movable secured assets from the valuers approved under the Act by Head Office as stated under Part C of this Circular and thereafter fix the reserve price of the assets in consultation with the approved valuer in respect of the property to be sold to realise the dues. I. The Authorised Officer may sell the seized movable secured assets in one or more lots by

adopting any of the following methods to secure maximum sale price for the assets, to be so sold –

a) Obtaining quotations from parties dealing in the secured assets or otherwise interested in buying such assets; or

b) Inviting tenders/sealed tenders from the public ; or c) holding public auction; or d) by private treaty.

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The Authorised Officer shall serve to the Owner a notice of thirty days for sale (Format-N). This may be issued immediately after taking possession if there are no prohibitive orders from DRT/High Court, but actual sale can be held after 45 days of taking possession. The owner may be advised in the sale notice itself that (a) If authorised officer decides to sell the property either by private treaty or by obtaining quotations, the consent of the owner would be solicited later (b) If he decides to sell the property by inviting tenders and public auction, he would publish a public notice with necessary details in one English and one local vernacular news paper and no further individual notice would be given to the owner. If the sale is being effected by inviting tenders from the public and public auction, the secured creditor shall cause a public notice as mentioned above ( Format -O ) by setting out the terms of sale on “As is where is basis”, which may include; e) details about the borrower/owner and the secured creditor; f) description of secured assets to be sold with identification marks or numbers, if any, on them; g) reserve price, and the time and manner of payment; h) time and place of public auction or the time after which sale by any other mode shall be

completed; i) depositing earnest money as may be stipulated by the secured creditor and deposit of balance

within 15 days on confirmation of sale. j) any other thing, which the Authorised Officer considers it material for a purchaser to know in

order to judge the nature and value of movable assets. k) For publication of notices through “Sale by inviting Tenders and by Public Auction”, the draft

Format -O may be adopted with suitable changes like description of movable items, any conditions etc., in consultation with Panel/Retainer Advocate, if necessary.

II. Sale by Obtaining Quotations or by Private Treaty shall be on such terms as may be settled

between the parties in writing and with consent of owner. The Act and Rules are silent about absence of Consent of owner for sale by Quotation or Private Treaty. Hence it is suggested that if the Owner does not respond or refuses to give his consent, the secured assets may be sold by “Tenders- Public Auction mode” keeping the quotation /private treaty amount as Reserve Price

III. If there are no bidders for the reserve price, authorized officer can sell the property for a lower/lesser price with written consent of the owner.

(B) Issue of certificate of sale for movable assets: -

(1) Where movable assets are sold, sale price of each lot shall be paid as per the terms of the public notice or on the terms as may be settled between the parties, as the case may be, and in the event of default of payment, the movable secured assets shall be liable to be offered for sale again.

(2) On payment of sale price, the Authorised Officer shall issue a certificate of sale in the prescribed form (Format-P) specifying the movable assets sold, price paid and the name of the purchaser and thereafter the sale shall become absolute. The certificate of sale so issued shall be prima facie evidence of title of the purchaser.

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Circular No.153/2007-BC-CST dt.08.08.2007 18. Possession and Sale of immovable secured assets: -

A) 1. Where the secured asset is an immovable property, the Authorised Officer shall take

possession, by delivering a possession notice (Format- M) to the owner, by affixing the possession notice on the outer door or at such conspicuous place of the property and also by publishing in two leading newspapers (one in vernacular language) having sufficient circulation in that locality.

2. If the property is a vacant site, a board shall be installed prominently on the property

displaying that Authorised Officer of the Bank under the Act has taken possession of the site (in Local Vernacular Language) as follows:

Andhra Pragathi Grameena Bank _____________________Branch

The Authorised Officer of the Bank has taken possession of this property under SARFAESI Act. General Public are hereby cautioned not to deal with the property directly with the owners.

Authorised Officer

Wherever it is not feasible/possible to take actual possession, Bank can take symbolic (constructive) possession by serving, affixing and publishing the possession notice in newspapers. 3. In the event of possession of immovable property is actually taken by the

Authorised Officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property.

4. The authorised officer shall take steps for preservation and protection of secured

assets and insure them for both symbolic and actual possession till they are sold or otherwise disposed off.

If the owner approaches DRT, Branches shall act as per para- 16. 5. Before effecting sale of the immovable property, the Authorised Officer shall obtain

valuation of the property from an approved Valuer under the Act and fix the reserve price of the property in consultation with him and may sell the whole or any part of such immovable secured asset by any of the methods mentioned under Point 17.A ( I ).

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B. 1. The Authorised Officer shall serve to the owner a notice of thirty days for sale of the immovable secured assets, (Format-N). This may be issued immediately after taking possession if there are no prohibitive orders from DRT/High Court, but actual sale can be held any day after 30 days of taking possession and issue of sale notice. For other terms and conditions Para-17.A may be referred to. The rules under the Act do not prescribe any model Sale/Auction Notice. Hence the draft format for Sale by inviting Tenders/ Sale by Public Auction (Format-O ) is furnished for use appropriately. Rule 6(2) and 8(6) direct that Authorised Officer shall serve to the borrower (owner) a notice of 30 days for sale of movable and immovable assets. The rules do not direct to affix or publish the 30 days sale notice in newspapers. Therefore, there is no need for affixing or publication of 30 days sale notice addressed to Owner of the property. However, if the owner of the property avoids taking delivery of 30 days sale notice, the same shall be affixed in prominent place of the seized premises and also published in two leading newspapers, out of which one in local vernacular language. The rules stipulate publication of Auction Notice to public only if the sale is conducted through inviting tenders or public auction setting out the terms of sale in two leading newspapers, one in vernacular language. If it is a private sale or by obtaining quotations there is no need for publication. Public Auction Notice need not be sent by post to the owner separately.

2. If the Authorised Officer deems it fit sale notice can be put on the web site of the Bank. 3. Sale by obtaining quotations or by private treaty shall be on such terms as may be settled

between the parties in writing and with consent of owner (refer Para 17. A.II ). 4. If the property cannot be sold, steps have to be taken to reduce the Reserve Price in

consultation with the approved Valuer. Then, a notice may be sent to the owner as per the Format O-4 before deciding next course of action.

C. Time of sale, Issue of sale certificate and delivery of possession etc.-

(1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers or notice of sale has been served to the owner of the property. If sale notice (Format-N) is sent to the owners, sale can be held after 30 days.

(2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the Authorised Officer and shall be subject to confirmation by the secured creditor; provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified. Provided further that if the Authorised Officer fails to obtain a price higher than the reserve price, he may, with the consent of the owner (Format O.4) and the secured creditor effect the sale at such price. The authorized officer is the Competent Authority to confirm the sale.

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(3) On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty five percent of the amount of the sale price including EMD, to the Authorised Officer conducting the sale and in default of such deposit, the EMD shall be forfeited and the property shall forthwith be sold again.

(4) The balance amount of purchase price payable shall be paid by the purchaser to the Authorised Officer on or before the fifteenth day of confirmation of sale or such extended period as may be agreed upon in writing between the parties.

(5) In default of payment within the period mentioned, the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may be subsequently sold.

(6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the Authorised Officer exercising the power of sale shall issue a certificate of sale of the property in favour of the purchaser (Format –Q).

(7) Where the immovable property sold is subject to any encumbrances, the Authorised

Officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him.

(8) On such deposit of money for discharge of the encumbrances, the authorised officer or

purchaser may issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly.

(9) The Authorised Officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified above.

(10) The Certificate of Sale issued shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not.

(11) The Certificate of Sale shall be registered with appropriate registering authority under Transfer of Property Act on payment of requisite stamp duty and registration fee by the purchaser.

(12) Procedure for auction/sale: Though the Act and rules prescribe sale by public auction

or inviting tenders, it is better to prefer a method of inviting tenders with liberty to conduct public auction among the bidders to ensure better price for the property. If Authorised Officer is satisfied about the quantum of the highest bid, then the sale can be confirmed in favour of the highest bidder. After opening the bids, if the authorized officer feels that the bids are not competitive, then he can call for interse bidding among the participating bidders to fetch a better price. Before starting the auction, a letter may be obtained from the intending participants as per Format – O-1. While conducting the auction/sale, the proceedings shall be prepared by Authorised Officer as per Format – O-2. The Act does not provide for any Interim Certificate. There are instances the bidders have to raise funds to make payment of balance75% of bid amount. Hence an Interim Certificate as per Format – O-3, may be issued, which will be helpful for them.

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Circular No.153/2007-BC-CST dt.08.08.2007 (13) Reserve Price: As per the Act, the Authorised Officer has to get the assets valued by the

approved valuer for fixing the Reserve Price. At the time of furnishing the valuation, the valuers empanelled under the Act have to give the normal valuation for which two mutually willing parties would agree, guideline value / registration value fixed by the State Govt. and also distress sale value, which may be 10% to 25% less than the market value. This distress value will have to be taken into consideration along with the known encumbrances, by the Authorised Officer for fixing Reserve Price.

(14) Earnest Money Deposit: The Act does not stipulate any guidelines. 10% of the Reserve

Price may be fixed and depending upon the facts and circumstances of each case, the same may be lesser than 10%. It may be relaxed so that EMD should not be a hurdle for the interested bidders and should also avoid non-serious bidders.

(15) Time of auction: The Act does not stipulate any guidelines. As per Rule-9(3) of Security

Interest (Enforcement) Rules 2002, the successful bidder has to pay 25% of the bid amount inclusive of EMD immediately. If the bid amount is huge and the auction is conducted in the evening, the bidders may not be in a position to mobilize funds. Hence, it is preferable to conduct auction between 10.00 A.M. and 1.00 P.M., so that the successful bidder can arrange for depositing the balance either by cash or DD on the same day, as they will have enough banking hours left out to arrange for funds.

(16) Caveat: The parties may rush to Court/Tribunal/High Court after the Sale

Notice/Possession Notice is issued for stalling the process. In general, the Forums grant ex-parte orders like injunction/ stay/statusquo orders. If authorized officer anticipates such moves from the borrowers to stall the Bank‟s action, caveat petitions in the respective Courts/Tribunals can be filed immediately after serving of sale notice to the parties and publication of the auction notice in the Newspapers. Wherever there is no provision for filing caveat or DRTs/ Courts do not accept the same, our Panel Advocates may be requested to look out for such appeal/applications in the respective courts and as and when they are filed/moved our Advocates have to appear and oppose.

(17) Personal appearance of Authorised Officer before the Sub-Registrar for registering the

Sale Certificate is not required as per Section-88 (1) of Registration Act. A letter/certificate may be sent to the Sub-Registrar as per Format – O-5.

19. Appointment of Manager:

(1) The Board of Directors may appoint in consultation with the borrower/owner any person (hereinafter referred to as the Manager) to manage the secured assets taken over by the secured creditor.

(2) The Manager appointed by the Board of Directors shall be deemed to be an agent of the borrower and the borrower/owner shall be solely responsible for the commission or omission of acts of the manager unless such commission or omission is due to improper intervention of the secured creditor or the authorised officer.

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Circular No.153/2007-BC-CST dt.08.08.2007 (3) The Manager shall have power by notice in writing to recover any money from any

person who has acquired any of the secured assets from the borrower/owner, which is due or may become due to the borrower/owner.

(4) The Manager shall give such person who has made payment, a valid discharge as if he has made payments to the borrower/owner.

(5) The Manager shall apply all the monies received by him in accordance with the provisions of the Act i.e., in the absence of any contract to the contrary to be applied, firstly, in payment of such costs, charges and expenses, secondly, in discharge of the dues of the Secured Creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests.

20. Procedure for Recovery of shortfall of secured debt: - If the balance amount of debt due after crediting the sale proceeds of the assets sold under the Act is Rs.10.00 lakhs and above, an application for recovery of balance amount shall be presented to the Debts Recovery Tribunal in due format. If the balance amount of debt due is less than Rs.10.00 lakhs, then a regular Civil Suit shall be filed before the appropriate Civil Court. The provisions of the Debts Recovery Tribunal (Procedure) Rules, 1993 made under Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993), shall mutatis mutandis apply to any application filed under the provisions of the Act for recovery of balance. Application shall be accompanied with fee as provided in rule 7 of the Debt Recovery Tribunal (Procedure) rules 1993. 21. Reporting: The branches shall maintain a Register (as per Format G- Part B) for recording the cases in which action under the Act has been initiated. The branches shall furnish consolidated progress (Format – G- Part A) and individual account wise developments( copy of register Format – G- Part B) on monthly basis to their respective Regional Offices who in turn shall furnish consolidated report to Head Office, Kadapa

22. Miscellaneous guidelines:

1. If the borrower clears the dues of the bank together with the costs, charges incurred at any

time before the date fixed for sale or transfer, the asset seized or possession taken over should not be sold in the auction.

2. There may be instances wherein the borrower may have alienated / encumbered the property charged / mortgaged (in favour of the bank) to third parties. In such cases, the bank is entitled to demand from such third parties to pay the amount (which is due or may become due at a later date to the borrower) to the bank directly and give necessary certificate / discharge receipt thereof. Judgement reported in 2005 (62) SEBI & Corporate Laws 390 (Delhi High Court) O.P. Khanna Vs. UBI may be referred in case of need.

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3. In respect of cases where the realizable value of hypotheca/secured movable assets is nominal, it is advisable to seize and sell the same under General Law of Contracts as per Bank‟s Loan cum Hypothecation agreement instead of preferring action under Securitisation Act.

4. In respect of accounts pending before BIFR, if the secured creditors representing three

fourth of outstanding dues have taken measures to recover their dues, then the proceedings before the BIFR shall abate. In this connection, necessary steps shall be taken in co-ordination with other secured creditors to come out of the purview of BIFR proceedings.

AMENDMENTS TO THE COMPANIES ACT: New provisos have been added to Section 424 A to the effect that any reference pending and any scheme for revival and rehabilitation pending before the Tribunal on or before 11.11.2004 shall abate if ¾th of the secured creditors (in value of amount outstanding) take any measure under Securitisation Act. Further, no fresh reference can be made by the borrower if ¾th creditors have already taken steps U/s.13(4) of SARFAESI Act. Supreme Court has held that Section13(2) Notice is not a mere show cause notice but an “action” taken under the provisions of Securitisation Act in Transcore‟s case. Hence, even by issue of Section-13 (2) notice, the reference pending before BIFR gets abated. It may be noted that this is in addition to the amendments already made by SARFAESI Act to SICA in the year 2002.

5. If it is a Consortium Advance, the provisions of this Act can be enforced by the Secured

Creditors representing 75 % in the value of the amount outstanding, as on a record date and it is binding on the remaining Secured Creditors.

6. Where a company is in liquidation, the amount realized from the sale of secured assets

shall be distributed in accordance with the provisions of section 529 A of Companies Act. As per Section 529 A of Companies Act, dues of workmen and dues of the secured creditor shall have pari-pasu charge over the secured assets. Therefore after realizing the securities, bank shall deposit workmen dues with the Official Liquidator / the Company Court as the case may be and appropriate the balance amount to the loan account.

7. In case of any bonafide act in the matter of enforcing securities, no suit, prosecution or legal proceedings shall lie against such persons. The protection is extended in connection with the exercise of the rights of the borrower against the third parties or those who stand in legal relation with the borrower.

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Circular No.153/2007-BC-CST dt.08.08.2007 8. The Act will have precedence over other enactments and creates special rights in the

secured creditors. Please refer decision in Mardia Chemicals Case, 2007 (2) Current Tamil Nadu cases 193 (Division Bench – Madras) Sri Laxmi Products Vs. SBI and 2005 CBJ 638 (Division Bench-Kerala) Shamim S Vs. City Police Commissioner.

9. The postal acknowledgement cards and the courier delivery receipts evidencing delivery of

notices issued under Act should be kept with loan documents in safe custody. If postal acknowledgment cards /courier receipts are not received within a reasonable time, branches should immediately write to postal/courier authorities and obtain confirmation of delivery from them.

10. The Inspecting Officials during branch inspection shall verify the register containing details

of cases under Securitisation Act and ensure that all related papers are properly held under safe custody alongwith loan documents.

11. Though the Act provides for two appeals to DRT and DRAT, sometimes owners of assets

may approach High Court directly and obtain interim orders. Then Branches shall request High Court to pass an order directing the parties to submit OTS proposal, to deposit lumpsum amount to show their bonafides or to vacate the interim orders. If they fail, High Court may be requested to dismiss their writ petition confirming the steps taken by the Bank. Those Writs need not be contested on technical grounds, as this approach will give more time to the parties and delay our recovery process.

12. Steps can be taken in respect of a security held in the custody or occupation of the owner

or tenant. Notices as per Format – M-1 to be sent to the tenants demanding their voluntary vacation and handing over of peaceful possession, payment of rent till their vacation etc may be got approved from the Retainer Advocate, wherever required. The courts have held that tenants cannot oppose Securitisation Steps vide Bombay High Court in 2006 (2) DRT cases Page-27 (Division Bench) Yukta Mookhey Vs. BOI, 2007 (2) Current Tamil Nadu cases 193 (Division Bench – Madras) Sri Laxmi Products Vs. SBI and 2005 CDJ 638 (Division Bench-Kerala) Shamim S Vs. City Police Commissioner and 2007 (1) Bankers‟ Journal 686 Sanjeev Bansal Vs. Oman International Bank (Division Bench – Delhi).

A tenant can get the protection only if the tenancy is created as per Section-65 (A) of the Transfer of Property Act 1882. SARFAESI Act can override / prevail over all other Rent Control / Tenancy Acts passed by the respective State Governments. The protection afforded by any Local / State Acts relates to the landlord only and it is not applicable to Authorised Officer / Secured Creditor under SARFAESI Act. If the lessee claims his possession under an Unregistered or Understamped Lease Deeds, no protection is available against SARFAESI steps. If a lease deed is for a period beyond three years, no protection is available against SARFAESI steps. There should not be any (rent) advance, premium, clause for renewal etc., in the Registered Lease Deed to claim the benefit.

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13. Since the Act/Rules stipulate publication of notices in vernacular language newspaper, the notices shall be translated in local language and published but not the English version of notices.

14. Possession notice as well as sale notice can be published for more than one account by a

single notification by authorized officer to reduce the cost of publication and to reduce the burden on the borrower/owner, provided the branches and the properties fall under the jurisdiction of the same authorized officer.

15. Photographs of the borrowers/owners of the securities may also be published in the

respective notices, if it is felt necessary to create an impact on them.

High Court of Madras in 2006(5) Current Tamilnadu Cases 820 K.J. Doraiswamy Vs. SBI, Erode Branch and High Court of Madhya Pradesh in AIR 2007 M.P. 45 – Archana Chauhan Vs. SBI, Jabalpur have held that this is proper.

16. If any proceedings are pending before local Revenue Recovery authorities the same shall

be continued. So long as that is pending, steps under SARFAESI Act can not be taken. 17. This Act is applicable only in respect of securities offered originally at the time of arranging

the loan or during the currency of the loan and not to the uncharged properties which are attached before judgement in Civil Court/DRT.

18. The Regional Offices shall identify all the eligible accounts on a regular basis and initiate

action under the Act.

19. Civil Courts cannot interfere in Securitisation action/steps as per Section-34 of the Act. The Civil Courts cannot grant any injunction also. The following judgements may be referred to.

2006(2) Andhra Law Digest 476 Makineni Madhuri Vs. Bollu Nagabhushanam. 2006(1) DRT cases 484(DB)(AP) State Bank of India, Ongole Vs. Chinigeppali Lathangi.

DRT alone is competent under the Act.

20. If the successful bidder fails to pay the amount upto 25% immediately after the auction or balance 75% within the time granted by the Authorised Officer, all the amounts paid by him till then shall be forfeited and credited to the income of the Bank. If the next/second bidder is ready and willing to pay the highest bid finalized, the sale may be finalized in his favour without arranging for a fresh sale/auction again. Otherwise, a fresh sale has to be conducted as per the procedure.

***

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PART – B Chronology of action points/ Check List

1) Proper scrutiny and identification of eligible NPA accounts 2) Permission of Competent Authority to issue notice (Format –A) 3) Issue of Demand Notice (60 days period)– Format- B or C and D 4) Disposal of reply /objections of the party to the Demand Notice by preparing suitable reply

by applying mind. Approval of draft reply by law officer/retainer advocate Format –D-1. 5) Taking possession and issue of Possession Notice –Format- M (for immovables). In case

of movable secured assets, Panchnama (Format-K) shall be drawn and signed by witnesses followed by preparing Inventory (Format- L) of movable assets taken possession.

a) Approach District Magistrate /Chief Metropolitan Magistrate if resistance from borrower/owner of the property is anticipated (Format – J).

b) Safe Custody and Insurance of secured assets taken possession. c) Valuation by the approved Valuer under the Act if sale of Securities is effected through

public auction /inviting tenders. d) If party approaches DRT with in 45 days of taking possession, steps shall be taken to get

the appeal disposed off by DRT. In case of adverse orders of DRT, move to DRAT. e) If party moves High Court, Branch may request High Court for vacation of stay or to direct

the party for OTS. f) Issue notice to tenants if any, in Format M1 6) Issue of 30 days Sale Notice (immediately after taking possession)- Format- N a) To file caveats. b) Actual Sale after 30 days of issuing sale notice. c) Mode of sale –any one of the 4 modes permitted under the Act Viz., Public auction/Inviting Sealed Tenders/ Private Treaty /By obtaining quotations from the parties dealing in secured assets. d) Sale of properties may be effected by inviting sealed tenders or by public auction (Format - O). If sale is by private treaty or by obtaining quotations from the parties dealing in secured assets or otherwise interested in buying such assets, consent of the borrower/owner of the property shall be obtained (Format – O-1 to Format – O-5 respectively). e) Issue Sale Certificates (Formats P & Q)

For proper follow up, this checklist shall be kept in each NPA account loan file in which action under SARFAESI Act is initiated.

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PART – C

Guidelines on empanelment and utilisation of services of Approved Valuers As per the Security Interest (Enforcement) Rules 2002, Valuers are to be approved by the Board of Directors of the respective Banks for valuing the assets and fixing Reserve Price for sale of assets under this Act. Board in its meeting held on 12.07.2007 authorised the Chairman to empanel the Approved Valuers. The appointed Valuer services shall be availed by the authorised officers for the purpose of valuation of assets and fixing reserve price. All the existing valuers mentioned in the above circular shall be advised to execute an indemnity as per Format I. For seeking empanellment of additional valuers under the Act on the panel of Bank, Regional Offices shall obtain an application from the valuers as per Format – H and forward the same along with relevant copies of the certificates / documents, recommending to Head Office. Eligibility criteria for empanelling new valuers: 1) He shall be preferably an associate/fellow member of Institute of Valuers. 2) He shall have experience as valuer on the panel of Banks, Insurance Companies, Income

Tax/ Wealth Tax Department etc. 3) The valuer shall be specifically empanelled for valuing houses/ buildings or machinery,

depending upon their qualifications. For e.g. Mechanical Engineers shall be empanelled for valuing machinery etc. Civil Engineers for valuing houses / buildings.

4) The applications of Valuers who are on the panel of Income Tax, Government Departments and other Banks may be submitted for empanellment, after enquiring their credentials.

After obtaining approval from the Head Office, the Valuer shall be informed of the same and obtain Indemnity bond (Format - I) duly executed by them on required stamp paper Schedule of fee payable to approved valuers for valuation of assets.

On the first Rs.50, 000/- of the property valued At ½% of the value of the property

On the next Rs.1.00 lakh of the property valued At ¼% of the value of the property

On the next Rs.50.00 lakhs of the property valued At 1/8 % of the value of the property

On the balance of the property valued At 1/16% of the value of the property

The fee payable as above is subject to a minimum of Rs.250/- and a maximum of Rs.10,000/- for each party / account. Branches shall refer Cir. No 127-2006-BC-CD, dt. 16-11-2006 for other details. It is advisable to obtain the valuation of secured assets at the time of sale from the valuer other than the one who has valued the assets at the time of lending.

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PART – D

List of Draft Notices, Applications and Agreement Formats

Sl No

Particulars Format

1 Proposal for seeking permission to issue notice under Act 2002 (Both for Non Suit Filed /Suit Filed Accounts)

Format –A

2 Demand Notice to borrower/s and surety/ies U/s 13 (2) ( Non Suit Filed Account)

Format –B

3 Demand Notice to borrower/s and surety/ies U/s 13 (2) ( Suit Filed Account)

Format –C

4 Paper publication of Demand Notice, if returned undelivered /correct address of the borrower/surety could not be located by branch (For both Suit filed and non suit filed)

Format –D

5 Interim Reply to the objections of the borrower Format – D.1

6 Letter to be issued to the borrower/surety/owners of security committing default after rephasement/ OTS sanctioned in response to Notice issued under Sec 13(2) of Securitisation Act

Format –E

7 Memo to be filed before DRT/Court Format –F

8 Monthly progress report under Securitisation Act Format –G

9 Application for empanelment of Valuer Format –H

10 Indemnity bond to be executed by the approved valuer Format –I

11 Application seeking help from Chief Metropolitan Magistrate / Dist Magistrate

Format –J

12 Panchnama Format –K

13 Inventory Format- L

14 Possession notice (for immovable property) Format –M

15 Letter to the tenant Format – M.1

16 Sale Notice under Rule 8 (5) for and (6) of Security Interest (Enforcement) Rules 2002 for Immovable property- Rule 6 ( 1) and (2) for movable property.

Format –N

17 Sale through Inviting Tenders and Public Auction (movable and immovable property)

Format – O

18 Letter from the bidders Format – O-1

19 Auction proceedings Format – O-2

20 Interim Certificate to successful bidder Format – O-3

21 Letter to owner regarding reduction of Reserve Price Format – O-4

22 Letter to Sub-Registrar from AO Format – O.5

23 Certificate of sale ( for movable property) Format –P

24 Certificate of sale ( for immovable property) Format –Q

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Format- A

Andhra Pragathi Grameena Bank

Branch __________________ Region_________________

Ref. No: Date:

PROPOSAL FOR SEEKING PERMISSION TO ISSUE NOTICE UNDER SECURITISATION ACT)

(For both non suit filed and suit filed accounts) l) Particulars of the Borrowers and Owner of the secured property :

(Name of the partners / directors as the case may be) (Rs in lakhs)

Name

Present Address / Unit Address

a)

b)

II. Particulars of the Co-obligants:

Name

Present Address

a)

b)

III. Nature of Account:

a) Account Number

b) Date & Amount of Limits Sanctioned

c) Sanctioning Authority

d) Purpose of Advance

e) Real Account Balance as on _______

f) Shadow Account balance as on ______

g) Provision held as on ____

h) Date of NPA

i) Reasons for a/c becoming NPA

j) Classification of Asset

k) Total recovery from the beginning

l) Date of Regd. Notice & Response of the Party

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Circular No.153/2007-BC-CST dt.08.08.2007 Details of Secured Assets available for enforcement:

i) Nature of Mortgage/Charge on Security/ies with full description such as location, identification marks, boundaries etc.

ii) Name of the Owner of the secured assets iii) Value of assets at the time of sanction. iv) Present Realisable value, as per Branch estimation v) Date of last inspection of Securities, Name &

Designation of the Official If there is depletion in original securities/reduction in value, reasons for the same:

Details of Documents (In cases of Non Suit Filed Accounts):

i) Validity of the Documents

ii) Mode of Creation of Security & its validity.

Details of Suit Filed (In cases of Suit Filed Accounts*):

i) Date of filing suit and OS/OA No. ii) Plaint amount iii) Stage of suit/OA. iv) Details of Stay /injunction/ prohibitory orders if

any, which are in force against Bank regarding charged securities.

v) Whether Decreed/RC Issued

Recommendations of the Branch Manager:

Date: Place Branch Manager

Remarks / Observations/Recommendations of RO

Date: Place: Regional Manager

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Format –B

(Notice to Borrower/s and surety/ies- Non Suit Filed Account )

Andhra Pragathi Grameena Bank --------------------- BRANCH Ref No: Date: To Borrower/s: Surety/ies: 1. 1. 2. 2. 3. 3. Dear Sir, NOTICE U/S 13(2) OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 1) We have, at your request, granted to borrower/s various credit limits for an aggregate amount

of Rs……………………and we give below full details of various credit facilities granted by us :

Sl. No.

Nature of facility Limit Outstanding liability as on……………….

1

2

3

4

5

Total

2) As you have defaulted in repayment of your liabilities, we have classified your account/s as

Non Performing Asset in accordance with the directions or guidelines issued by the Reserve Bank of India.

3) In view of continued default in payment as against agreed terms of loan documents, the whole

amount has become payable. Hence a sum of Rs.…………….(Rupees………………………………………………………….. ...…………………………………) is due alongwith interest from …………. and costs etc.

4) We also inform you that inspite of our repeated notices and oral requests for repayment of the

entire amount due to us, you have not so far paid the same. …28

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Circular No.153/2007-BC-CST dt.08.08.2007 5) You are aware that the various limits granted by us are secured by the following assets

(secured assets) owned by -------------------------(Name of the owner): a) b) c) d) 6) For the reasons stated, we hereby call upon all of you to discharge in full your liabilities to us

within a period of 60 days from the date of this notice, failing which, we will be exercising the powers under Sec.13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act against the secured assets mentioned above. The powers available to us under Sec. 13 of the Act inter-alia includes (i) Power to take possession of the secured assets of the borrower including the rights to transfer by way of lease, assignment or sale for realising secured asset, (ii) Take over the management of the business including the rights to transfer by way of lease, assignment or sale & realise the secured debt, and any transfer of secured asset by us shall vest in the transferee all rights, or in relation to, the secured asset transferred as if the transfer had been made by you.

7) The amount realised from exercising of the powers mentioned above, will first be applied in

payment of all costs, charges and expenses, which in the opinion of us have been properly incurred by us or any expenses incidental thereto, and secondly applied in discharge of the dues of us as mentioned above with contractual interest from the date of this notice till the date of actual realisation, and the residue of the money, if any, shall be paid to you.

8) Please take note that after receipt of this notice, you shall not transfer by way of sale, lease or

otherwise any of the Secured Assets referred to in this notice, without prior written consent of the Bank (Secured Creditor). If done it is an offence punishable Under Section-29 of the Act.

9) Please take further note that this is without prejudice to the rights of the Bank to proceed

against all of you before the DRT / Competent Court for recovery of the entire balance amount outstanding or any part there of along with interest payable and costs till the date of realization.

Authorised Officer Place: Date: Note: Wherever required, necessary changes in the format may be made in consultation with Panel / Retainer Advocate.

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Format –C

(Suit Filed Accounts)

(Notice to Borrower/s and surety/ies) Andhra Pragathi Grameena Bank --------------------- BRANCH

Ref No: Date: To Borrower/s: Surety/ies: 1. 1. 2. 2. 3. 3. Dear Sir,

NOTICE U/S 13(2) OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002

1) We have, at your request, granted to the borrower/s various credit limits. 2) We also inform you that in spite of our repeated notices and oral requests for repayment

of the entire amount due to us, you have not so far paid the same. Pursuant to your default, the Bank has filed suit OS/OA No.______ before the court/tribunal at _________________ on _________ for recovery of an amount of Rs.________ with future interest, compounded quarterly/monthly @_______ (mention rate) from _________ and costs etc. As per the said claim, you are liable to pay Rs……………….. as on ……………which carries further interest at the said rates.

3) We have classified your account/s as Non Performing Asset in accordance with the

directions or guidelines issued by the Reserve Bank of India.

4) You are aware that the various limits granted by us are secured by the following assets (secured assets) owned by ----------------------------( Name of the owner)

a) b) c) d)

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Circular No.153/2007-BC-CST dt.08.08.2007 6. For the reasons stated, we hereby call upon all of you to discharge in full your liabilities to us

within a period of 60 days from the date of this notice, failing which, we will be exercising the powers under Sec.13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, against the secured assets mentioned above. The powers available to us under Sec. 13 of the Act, inter-alia includes (i) Power to take possession of the secured assets of the borrower including the rights to transfer by way of lease, assignment or sale for realization of secured debt, (ii) Take over the management of the business including the rights to transfer by way of lease, assignment or sale & realization of the secured asset, and any transfer of secured asset by us shall vest in the transferee all rights, or in relation to, the secured asset transferred as if the transfer had been made by you.

7. The amount realised from exercising of the powers mentioned above, will first be applied in

payment of all costs, charges and expenses, which in the opinion of us have been properly incurred by us or any expenses incidental thereto, and secondly applied in discharge of the dues of us as mentioned above with contractual interest from the date of this notice till the date of actual realization of, and the residue of the money, if any, shall be paid to you.

8. Please take note that after receipt of this notice, you shall not transfer by way of sale, lease or

otherwise any of the Secured Assets referred to in this notice, without prior written consent of the Bank (Secured Creditor). Further in view of realisation of Suit/OA wherein the Secured Assets are subject matter, any sale etc by you is subject to the decision of the Court/DRT and not binding on the Bank, besides being an offence punishable under Section-29 of the Act.

9. Please note that the notice issued herein is without prejudice to the rights and contentions of

the Bank in pending Suit/Application for the reason that, it would cover personal remedy and other uncharged movable and immovable properties of all of you and we reserve our rights to continue the proceedings initiated against you in the said suit. In the event of your failure to remit the dues within 60 days and bank opts to sell the securities in terms of the powers under the said Act and if the sale proceeds of the secured assets are not sufficient to discharge your debt in full, the pending suit for recovery of the balance amount from you shall be continued against all of you as mentioned above.

Authorised Officer

Place: Date: Note: Wherever required, necessary changes in the format may be made in consultation with Law

Officer/Panel Advocate.

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FORMAT-D

(To be published in newspapers, if the original Notice issued under Sec 13(2) of SARFAESI Act 2002 is returned undelivered) To: Borrower/Surety: 1) 2) 3) In respect of loans availed by you which have become NPA with balance outstanding of Rs. -------------- ( ---------------------------) as on -------------- , we have already issued detailed demand notice dated ----------- under Sec 13(2) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 by Courier/ Registered post with acknowledgement due to you which has been returned undelivered with following remarks, ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------. We have indicated our intention of taking possession of securities owned by no.---- of you as per Sec 13(4) of the Act in case of your failure to pay the amount mentioned above within 60 days. Brief Details of Security: You are advised 1) to collect the original notice/cover addressed to you and returned by Courier/Postal Authorities from the undersigned for more and complete details and 2) to pay the balance outstanding amount with interest and costs etc., within 60 days from the date of notice referred to above to avoid further action under the SARFAESI Act.

Authorised Officer

If photographs of parties are available, the same may also be published. This format may be used for both suit filed and non-suit filed cases.

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FORMAT – D-1

INTERIM REPLY TO THE OBJECTIONS OF THE BORROWER To:

BY CERTIFICATE OF POSTING ------------------------ ------------------------ (Borrower/Owner) Dear Sir, Sub: Notice issued under Section 13(2) of SARFAESI Act to you. ======== We acknowledge the receipt of your letter dated …………/Notice dated ------ issued by you/ your Advocate, wherein, you have raised your objections/made your representation in respect of the dues demanded from you by the above said Demand Notice. As per the Amendments made effective from 11.11.2004 to the SARFAESI Act, we have to furnish our reasons within one week of receipt of your letter. You have raised various objections / you have made representation, which calls for a detailed study at our end to inform our stand to you. Since, the time available is very short, we would be furnishing our reply with our reasons for your objections/statement within 10 days. Till then, this may be treated as our interim reply.

AUTHORISED OFFICER

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FORMAT- E

Format of Notice to be issued to the borrower/surety/owners of security committing default after rephasement/ OTS sanctioned/upgradation in response to Notice issued under Sec 13(2) of Securitisation Act Andhra Pragathi Grameena Bank----------------------Branch To: Borrower/Surety/owners of security Sub: Notice under Section-13(2) of SARFAESI Act 2002. In response to our above notice issued on __________ to you and others the borrower has approached the Branch with a promise of repayment of dues and as per the request dated………… (a) the Branch has rephased the loan on ___________ permitting the repayment as per the new schedule. But, the commitment is not kept up.

(OR) (b) the branch has sanctioned OTS proposal on __________ . But the commitment regarding the repayment is not kept up.

(OR) (c) the branch has permitted further payment as per original instalments after upgradation on……….. But the commitment is not kept up. In view of the default committed again, our earlier notice dated _________ stands revived and we are proceeding further as indicated therein.

AUTHORISED OFFICER

----------------------------------------------------------------------------------------------------------------------------------- Note : (1) Branches should mention (a) or (b) or (c) only in the original. (2) This may be sent by Certificate of Posting.

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FORMAT-F

MEMO TO BE FILED BEFORE DRT/COURT

IN THE DEBTS RECOVERY TRIBUNAL/ IN THE COURT OF ....................... (Name of the Court/place) O.A.No/O.S.No.............of 200............ BETWEEN : APPLICANT/PLAINTIFF AND : DEFENDANT

MEMO FILED ON BEHALF OF THE APPLICANT/PLAINTIFF

The applicant/plaintiff without prejudice to its contentions, submits that in exercise of powers conferred on it under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, its Authorised Officer has initiated action against the defendant/s No.s_____ by issuing enforcement notice dated........under Section 13(2) of the said Act. The Applicant further submits that further proceedings against those defendant/s and the secured assets will be initiated/and continued by its Authorised Officer/Agents by exercising powers conferred on it under the said Act, independent of the above pending proceedings in case of default by the defendant/s to discharge the liabilities as demanded in the said notice, on the expiry of 60 days notice period as provided by above said Act. If any amounts are recovered under this process, the applicant/plaintiff shall report the same to this Hon'ble DRT/Court, the details of recovery made from those defendant/s. On such reporting, giving details of money/ies recovered, the Hon'ble Court/Tribunal may record part satisfaction to that extent only and pass decree/issue RC for the balance amount as prayed for in the Suit/OA after accounting for the amounts received and reported during pendancy of this Suit/Application.

APPLICANT/PLAINTIFF

ADVOCATE FOR APPLICANT/PLAINTIFF

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FORMAT- G

Monthly Progress report under Securitisation Act

Part A (Monthly report) Andhra Pragathi Grameena Bank -Branch: -------------------------------------- Securitisation and Reconstruction of Financial Assets and Enforcement of Security interest – Act 2002 - Monthly Progress report as on ______ (to be submitted by 10th of succeeding month)

(Rs in lakhs)

Accounts identified for issuing notices

Notices issued Amount recovered after issuing of notices under the Act

No of

A/cs

Real

Bal

Shadow Bal

No of A/cs

Real Bal

Shadow Bal

Partial recovery Full recovery

No of A/cs

Amt recovered

No of A/cs

Amt recovered

Supplementary Information (Rs in lakhs)

S No

Particulars No of Accounts Shadow Balance

1 Notices issued in Suit filed Accounts

2 60 days notice period completed

3 Assets taken possession

4 Assets disposed off through Sale

Particulars of OTS proposals received /sanctioned after issuing Notice under the Act

(Rs in lakhs)

OTS proposals received

OTS proposals under Negotiation

OTS Proposals sanctioned

1= (2+3) 2 3

No of A/cs

Total Dues

No of A/cs Total Dues

No of A/cs Total Dues

Offer Amount

Amount Recovered

*All figures reported shall be on cumulative basis

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Part B (Monthly report) for the month of -----------------------

ANDHRA PRAGATHI GRAMEENA BANK Branch: __________________________

Detailed report to be submitted on monthly basis by 10 th of succeeding month in respect of notices issued in all accounts from the beginning. (Closed accounts shall not be deleted from the list for the purpose of reporting)

(Rs in lakhs)

S

No

Name of the Borrower

Date of loan

Purpose of

advance

Documents valid up to

Date of issuing notice

Real balance

Shadow Balance

Asset classification

1 3 5 6 7 8 9 10 11

Nature of Security

Security value

Amt. recovered after issuing of notice

Status (60 days completed/possession taken/ sale notice issued/ auction held

Action Taken

12 13 14 15 16

Through sale of assets

Thru OTS

Branch Manager Date:

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FORMAT- H

Application for Empannelment of new Valuers

1 Name of the Valuer

2 Address: Office

Residence:

3 Date of Birth and Age

4 Educational Qualifications

5 Memberships: Institute of valuers Indian Institution of Engineers or any other institute (Specify)

6 Experience as Valuer

7 Whether Panel Valuer for the Govt. Organisations/Banks. If so, since when (submit copies of empanellment)

8 Specify: valuer for valuation of a) Land, Buildings other immovables b) Machinery, Vehicles

9 Area of specialization, if any

10 Any other Information

Signature of the Valuer Place: Date:

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FORMAT- I

(Indemnity bond to be executed by the Approved Valuer)

THIS DEED OF INDEMNITY is made on this day of 2007 between Sri/Smt/ M/s.______________ _____________________________________ hereinafter called the Valuer of the one part and Andhra Pragathi Grameena Bank, a Bank functioning under the Regional Rural Bank Act, 1976 with its Head Office situated at Kadapa, Andhra Pradesh, hereinafter called the Bank. The terms `The Valuer‟ and `The Bank‟ shall mean and include their heirs, representatives, the Executors, Administrators and Assigns. WHEREAS the Bank h